Mis-selling scandals that won't go away

Saturday 20 June 2009 19.01 EDT
First published on Saturday 20 June 2009 19.01 EDT

The Financial Services Act 1986 (FSA) - the initial legislation which controlled the way personal finance products are marketed and sold in the UK - was based on the idea of "caveat emptor" or "buyer beware".

This was incredibly pertinent because at that point, financial scandals were rife. Every week, Cash ran stories about rogue salesmen running off with their clients' money. They were tied agents, supposedly selling the products of just one company.

But the clients of many independent financial advisers also came a cropper after investing in Barlow Clowes, an "investment" firm run by the infamous Peter Clowes, who spent more than £100m of his clients' money on private aircraft, cars, homes and a luxury yacht.

Arguably worse still was the mis-selling of personal pensions. I remember going to a meeting in 1988 at which a union official told me how an insurance company's agents were standing at the gates of his factory every night and persuading employees to transfer from their company pension to expensive personal pensions. "You've got to write about it," he said. "People have got to be told how much they could lose."

Sadly, 21 years on, the mis-selling is continuing: a notable recent example is the pushing of expensive and often useless payment protection insurance by banks. And, despite the protestations of Chris Cummings in Question of the Week, some IFAs admit that their peers still sell certain products purely because they pay higher commission. Commission is paid by the provider to the adviser - but don't be under any illusions: the money is coming out of your premiums, and can have an enormous effect on what you get when you cash in an investment, pension or policy.

So the Financial Services Authority understandably thinks a new framework for the way advisers operate is necessary. But don't rely on the regulator sorting things out. The industry will be given three more years to implement the new rules, and even then, it might not work.

But paying fees means forking out for the advice upfront. Goodness knows where this leaves those on a low income and even smaller savings, who feel paying up to £300 an hour for advice is a bit excessive. They will undoubtedly end up being sold inappropriate products by their banks.